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Palin's Right: We Need to Stop Borrowing from China

Governor Palin won the October 2 Vice Presidential debate when she gave the American people the following lecture on savings which got right to the heart of our economic problems. (If you're not convinced that this statement won the debate, just click here to watch the focus group.) She said:

(NYSE:L)et's commit ourselves just every day American people, Joe Six Pack, hockey moms across the nation, I think we need to band together and say never again. Never will we be exploited and taken advantage of again by those who are managing our money and loaning us these dollars. We need to make sure that we demand from the federal government strict oversight of those entities in charge of our investments and our savings and we need also to not get ourselves in debt. Let's do what our parents told us before we probably even got that first credit card. Don't live outside of our means. We need to make sure that as individuals we're taking personal responsibility through all of this. It's not the American peoples fault that the economy is hurting like it is, but we have an opportunity to learn a heck of a lot of good lessons through this and say never again will we be taken advantage of.

She just returned to the theme of savings in a June 8 interview with Sean Hannity on Fox News:

HANNITY: What do you make of — look at the state of the economy now. I mean just last week when unemployment went from 8.9 percent to 9.4, we've quadrupled the deficit in a year. We — CBO says we're going to have literally $10 trillion in debt at the end of 10 years where we're paying almost $1 trillion on interest on the debt.

You're a governor. You have to balance budgets. What does that mean in terms of the overall economy? What are your thoughts on it?

PALIN: Well, when you — you consider this, the federal government is about $11 trillion in debt, and we're borrowing more to spend more, it defies any sensible economic policy that any of us ever learned going through college, defies economy practices and principles that tell you you've got to quit digging that hole when you are in that financial hole.


PALIN: America is digging a deeper hole, and how are we paying for this government largesse? We're borrowing from China, and when you consider that now we own 60 percent of General Motors or the U.S. government does, consider, but who is the U.S. government becoming more and more indebted to?

It's China. So that leaves you to have to ask who really is going to own our car industry in America?...

Palin is especially getting hit for saying that digging ourselves into a bigger debt hole "defies any sensible economic policy that any of us ever learned going through college." But she is correct.

Although the media thinks that Presidents Bush and Obama have been following the advice of John Maynard Keynes with their stimulus packages and Wall Street bailouts, Keynes actually recommended balanced trade to trade-deficit countries, not stimulus packages. He thought that trade-deficit countries made their financial situations much too precarious when they engaged in stimulus packages.

Keynes even predicted the persistent depression that the United States will experience if we don't balance trade. In his magnum opus, The General Theory of Employment Interest and Money, Keynes wrote:

(NYSE:A) favorable balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)

In his World War II writings, Keynes made clear that he would let a trade deficit country subsidize exports and restrict imports in order to balance trade, the very policies that Warren Buffett came up with, when he put together his Import Certificates plan.

It is not all that surprising that Palin has an instinctive grasp of economics. Those with common sense often have that sort of grasp. Harry Truman, the best economic president of the 20th century, had common sense. If McCain had had common sense, he would have followed Palin's lead after the VP debate and won the election. Instead he fell for the foolish and corrupt Wall Street bailout.

Now that Palin no longer needs to follow McCain's policies, she is back to making government debt an issue. I hope that she expands her common sense understanding of economics to include foreign debt. Our debt to foreigners is every bit as serious a problem as our governmental debt. When we run trade deficits, we increase the likelihood of an eventual dollar collapse. If Palin starts making foreign debt an issue, she would certainly shake up the good-old-boys in Washington!

If we were to balance trade using Warren Buffett's Import Certificates plan, we would not only stimulate our economy right out of the depression with no need for government deficit spending, but we would start getting the manufacturing investment needed for long-term growth. There is no better recipe for long-term growth during recovery from a debt crisis than balanced trade combined with balanced budgets.